The low number of audits of listed companies undertaken by mid-tier firms has led to concerns over the lack of competition within the audit sector.
Mid-tier audit firms feel discouraged from taking on audits of listed companies from fear that they may be hit with large fines, Thomson Reuters has reported.
This comes after the FRC issued six fines to mid-sized audit firms and auditors working from 2022/23, which was on par with 2021/22, and three times higher than the two fines issued in 2020/21 and 2019/20.
The low number of audits of listed companies undertaken by mid-tier firms has led to concerns over the lack of competition within the audit sector. The Big Four currently accounts for 98% of FTSE 350 audit fees.
According to the FRC, it is vital that the audit industry is competitive to “preserve the integrity of financial information in capital markets”.
Concerns over investigations by the FRC into mid-tier audit firms undertaking listed company work have made it more difficult and expensive for these firms to get the professional indemnity coverage necessary for auditing listed companies.
Lengthy investigations by the FRC and the possibility of large fines from the FRC also means that insurers of audit firms may have to increase insurance premiums.
Kyle Gibbons, Europe managing director for confirmation at Thomson Reuters, said: “The FRC is in a challenging position of needing to ensure that audit standards stay high whilst balancing that with the need to make pitching for listed company audits worthwhile for mid-tier accountancy firms
“One thing mid-market firms can proactively do to reduce the risk of manual errors is to make better use of technology. And, when adopted in a thoughtful way, technology can give these firms greater capacity to take on larger audits, and the confidence to compete for them.”
The audit profession is gearing up for a new regulator, with the Audit, Reporting and Governance Authority (ARGA) set to come into effect in 2024 with greater powers than the FRC. The new body will address issues such as audit transparency, reliability, quality and sustainability
Writes Accountancy Today